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Macroeconomics
Question | Answer |
---|---|
Inflation | A general rise in the price levels of an economy |
Macroeconomics | - The study of economics as a whole - Looks at the decisions of countries and governments. |
Hurt by Inflation | - Lenders-People who lend money (at fixed interest rates) - People with fixed incomes - Savers |
Who is helped by Inflation | - Debtors-People who borrow money - A business where the price of the product increases faster than the price of resources |
Price Stability: Why is it a goal? | - Stable prices are a sign of a healthy and well-managed economy. - In Canada, the Bank of Canada is responsible for policies that try to maintain an inflation rate target of between 1-3% Now, we are not at our goal |
Measuring Price Stability: Reasons why prices tend to increase a little | - Increased consumer demand - And increase in the prices of productive resources |
What does Stats Canada use to track inflation? | consumer price index (CPI) |
What is CPI? | A price index that measures changes in the level of prices of consumer goods and services |
8 Categories of CPI (TRASH FCP) | - recreation education and reading - alcoholic beverages and tobacco products - food - shelter - household operations furnishings and equipment - clothing and footwear - transportation, health - personal care |
Cost-of-Living-Adjustment (COLA) | Some worker salaries are pegged to inflation. They negotiated wages that rise with inflation |
Price Stability: Why is it a goal? | - Inflation erodes the value of savings, as money saved now is unable to purchase the same quantity of goods and services in the future. - inflation erodes wages |
What is indexing? | An adjustment made to some wages and pension payments to offset year-to-year price increases, using the CPI as a guide. |
What is a serious kind of price instability? | hyperinflation. It occurs when inflation exceeds 50 percent in any month. When hyperinflation arises, the problem is so serious that people lose confidence in the value of their local currency and try to exchange foreign currency |
Limitations of the CPI | Cultural diversity: Consumption patterns are culturally unique and CPI categories all take on varying degrees of importance in the domestic budgets of different cultures Changes in individual items in the representative basket. Quality&price change |